«Nord Stream»: Possible Risks for Ukraine and Poland

In autumn 2015 there were two events which at first sight seemed to be little connected with each other.

The first one: on November 6, head of PGNiG Mariush Zavisha declared in an interview “Bloomberg”, that negotiations with “Gazprom” concerning Russian gas prices review in spite of the anti-monopoly proceedings in Stockholm court are nearing completion. Nothing has been added concerning the results of negotiations since then.

The second event was evidently more sensational, scandalous and had very extraordinary media coverage.

On September 4 2015 a jointstock agreement on the Nothern Stream-2 Project was signed with respective shares of the Gasprom subsidiary – 51%, E.ON, BASF/Wintershall and Shell – 10% and Engie — 9%. The agreement details were not officially published, however, they have not been published for Nord Stream -1 as well, which acted on the basis of a similar principle and with almost identical composition of stockholders.

At present «Nord Stream -1», according to the official statements as well as indirect data has had the maximum loading during all time of its existence at the level of 70% from its general capacity (55 billion м3/р) — a little less than 40 billion м3/р, which is a bit less that the declared capacity of the pipeline Grysovets- Vyborg, the only source of gas supply to Nord Stream -1 Thus, without, as a minimum, the construction of another gas pipeline from Yuzhnorusskoie deposit. the gas from which Nord Stream -1 is filling and as a maximum bringing into operation an additional deposit, this construction hasn’t got any sense.

As has been expected, on November 25 the Project has not been approved by the European Commission as such that does not conform to the principles of the Energy Union including European Union principles of energy safety strategy.

Approximately from the middle of October, experts of leading consulting agencies working as intermediaries between the biggest players of the Russian energy market and their foreign partners*, abruptly changed their rhetoric from Nord Stream-2 disapproval as a too politicized and absolutely unattractive Project from the commercial point of view to its absolute approval. Especially noticeable in this respect became M. Krutikhin, “Rus Energy” consulting company partner, editor of «The Russian Energy» weekly М. Коrchemkin, director general of the East European Gas Analysis agency (USA).

Both of them, former representatives of the Soviet special services, until now, continually, publicly and openly focused on the fact that Gasprom (and its subsidiaries) is an absolutely politicised structure, run by Putin in person, which plays an absolutely destructive role for the Russian economy. All Gasprom projects are of openly political nature and the only possibility of cooperating with them is to take this factor into consideration and act using corruption methods. They also focused on the fact that all these pipeline projects have the only sense the winners are the contractors who are already laying the pipelines These contractors possess a special status, have special relations with Russian political leadership. Arkadiy Rotenberg’s structures, for instance: they will use these resources and they do not care whether there will be gas in these pipes or not” (M.Krutikhin).

At present the rhetoric has radically changed. Moreover, both consultants started to deliver half-public lectures that were recorded on specialized resources that were little visited but open to public. Here are their major theses:

There are actually two Gasproms available: The first one is politicised, where decisions are made personally by Putin in a voluntarist style. The second is a pragmatic one striving to act as a good faith commercial company: their “young” management in most cases ignores and discards these voluntarist decisions, often with a risk for their careers.

“Again about two Gasproms. There are reasonably thinking people in Gasprom who carefully calculate the economic effect of all projects, including the ones with pipelines, they are subjecting themselves to the risks of being fired and they are fired,,, as you know that all Gasprom decisions are made in the President’s office… Whereas in the office… he just won’t listen to anyone. Decisions are brought to notice by the postman Miller… There are people who have common sense, who primarily ignore these directions… or misrepresent them” (M. Krutikhin)

Actions of the new Gasprom are described as rational and reasonable, the authors hint to the fact that all agreements with the management in essence do not have any legal significance and may be appealed at any moment:

«The new strategy of Gasprom emerged not due to the President but contrary to his wish … it has existed since 2007 when the European Commission declared that in all contracts prohibiting re-export of Gas this clause should not be applicable as it violates the rules of a free market, gas has a new owner (which possesses the right to dispose of it). Since that time Gasprom has never insisted that this clause be implemented, although in many Gasprom contracts this clause is still available.

Regardless of the fact that the terms and conditions of the Nord Stream -1 and the Nord Stream -2 are a commercial secret, M.Krutikhin describes them hinting that these terms and conditions are nothing but slightly disguised tampering: “they are guaranteed coverage of the expenses plus very good guaranteed profit for many years. Profit is guaranteed not for the physical gas volumes which will be transported but for the volume of the pipeline. It does not matter whether there is gas or there is no gas, the companies just receive their profit all the same”. (М. Кrutikhin).

Both experts also focus on the fact that German participants of the jointstock agreement constitute such a powerful industrial lobby that they are citing in different contexts a real or concocted phrase of A. Merkel: “ I cannot govern Germany without these people“|

The genuine aim of the Project is also unveiled, the authorship of which in different variations is attributed to a wide spectre of persons — from the Minister of Energy of Germany Z.Gabriel to M.Krutikhin himself.

«There was a proposal… to develop such a system where European traders will be buying gas in the Baltic Sea . That is, a virtual hub will exist where traders will be buying, some point of gas delivery in the Baltic Sea and to the German seashore gas will be delivered not from Gasprom but it will be already the gas belonging to European traders…. And then all questions of the Third Energy package are removed concerning the issue whose gas is travelling along pipelines. Which infrastructure shall be involved , – OPAL. NELL… And then it will become possible to organize delivery to the British Isles and wherever it pleases you.”

The rhetoric with regard to the Ukrainian transit prospects has been drastically reversed and quite unpredictably rated as “prospective”. This message is strengthened by Putin’s recent statement that Russia expects an extension of the transit contract after 2019 as well.

The practice when the Russian leadership declares their plans and intentions or divulges secret agreements using people who are influential but not formally related to state authority bodies or state corporations management is often applicable and widely known. However, this time the “experts”‘ have acquired more significance absolutely officially.

On October 28, the text of Z.Gebriel’s speech at the Eastern Energy Summit appeared on kremlin.ru website with the note of «retranslated» . The text (genuine or concocted), among other things, states that fundamental contemporary problems, especially conflict around Ukraine may be resolved and it is possible to do so within the framework of solely interaction at the level of “Russia— Germany”, without participation of the European Union and the United States.

«What’s most important as far as legal issues are concerned is that we strive to ensure that all this remains under the competence of the German authorities, if possible. So if we can do this, then opportunities for external meddling will be limited. And we are in a good negotiating position on this matter. And in order to limit political meddling in these issues – you are, of course, aware, this is not just a formality – we need to settle the issue of Ukraine’s role as a transit nation after 2019. »

This publication was not noticed by public at large but was widely discussed in the expert community, and the experts came to a more or less concerted conclusion about the conspiracy of Russia and Germany with regard to economic isolation of Ukraine at the highest level as a minimum and the actions aimed at complete ruination of the European Union’s energy policy as a maximum.

«There are also parties in Russia – namely Mr Putin and his circle – who ‘benefit from the continuation of this conflict’, but Mr Gabriel prefers to denounce Germany’s allies than to raise this point. While Russia annexes and invades Ukraine and mounts air strikes on US allies in Syria, Germany is making private deals with Russia to circumvent the EU energy strategy – a strategy that is intended to ensure the security and independence of European states. It might be viewed as another step in the ‘Schröderization’ of Europe» (Neil Barnett).

During the summit of the Atlantic Council on Energy and Economy this speech was even characterised as «his own goal», -whereas no one asked a question what was the reason for this speech to be honored for official posting on the Kremlin website and whether this speech was pronounced at all.

The same summit focused on the threats of this agreement for the Ukrainian economy and its numerous contradictions with the Third Energy Pack. However provided “a “virtual hub” is created within the framework of Nord Stream 2 (which will be also effective for the Nord Stream -1 ), this agreement in general does not fall under the effect of Energy Pack in so far as the gas will appear on the surface already in the status of the European gas traders’ property.

All these “information leaks” are likely to have a simple and obvious aim in mind: under the threat of divulging obviously corrupt schemes of the present and previous agreements to fully involve the German (primarily) industrial lobby

in the advancement of the implementation of the “virtual hub” idea and with their assistance gain full access to the NELL and OPAL gas pipelines, These demands may be strengthened by other Russian gas consumers, who rejected antitrust investigations concerning excessive price and entered into a contract with the “young progressive Gasprom management” having agreed to discounts and a permit to reexport transactions, which however exist solely in the form of a verbal arrangement and openly contravene the concluded contracts.

In this context, publication of Z.Gebriel’s speech, whether genuine or distorted, can be viewed as nothing else but the first demonstration of the blackmailer’s possibilities.

Taking into account the fact that the capacity of Slovak gas transport system has been fully reserved till 2029 (although it is being used less than a quarter) and by incurring insignificant expenses may be joined to OPAL (and its Czech extension Gazelle**) which in reverse regime is also used for delivery to consumers in Southern Europe the plan to get rid of not only Ukraine but also of Belarus and Poland looks very probable, In such a way the route will be changed to «СП1 — OPAL — Gazelle — Slovak section». And they will not be subject to antitrust legislation effect at all. .

In the event of such framework not only Ukraine will become an outsider but also Belarus and Poland.

Poland receives Russian gas mainly through the gas pipeline Yamal-Europe which runs through the territories of Russia, Belarus, Poland and finally ends in Malnof in Germany in the area of Frankfurt-on-Oder. The German section of the gas pipeline is owned by WINGAS, a joint enterprise of Gasprom and Wintershall Holding GmbH, a one hundred per cent subsidiary of already mentioned BASF. In 2014, Malnof station was reconstructed for gas reverse.

The Polish section of the gas pipeline is EuRoPol Gaz, a joint enterprise of Gasprom and the state company PGNiG, which is the ultimate consumer. Poland is the last in relation to which the Take or Pay principle is applicable — this principle is likely to be the major issue during negotiations concerning price review. moreover in 2009 the volume of вибірки was raised by a separate agreement.

Under these circumstances the state of PGNiG is directly dependent on the data provided by EuRoPol Gaz and WINGAS. In spite of certain paranoid assumption that they are able to provide untrue data as to the volumes of прокачки,we have to recollect the incident when there was almost 50% decrease of gas delivery to Poland in autumn of 2014, when Gasprom and EuRoPol Gaz had been denying pressure decrease at the gas pipeline for 48 hours. It is worth noting that this incident was directly related to the PGNiG attempts to adjust straight gas reverse to Ukraine. The synchronised “accidents” at Malnof and СП-1 (which were later called routine repairs) on 7 August this year.

These events happened when there was still the old composition of EuroRoPol Gaz stockholders. The new composition was presented on September 18 and it is interesting that it now included a representative of Wintershall Erdgas Handelshaus GmbH. Therefore in spite of the fact that at present PGNiG controls 52% of the operational facilities its position is unlikely to be considered certain.

Meanwhile the neftegaz.ru posting is delighted by the new composition of stockholders. .

«The decision of EuroRoPol Gaz general meeting peacefully extended for three years the authority of M.Idzik as the president and the company board of directors head … It pleases us because it could have been different. Or rather it was different quite recently. EuRoPol GAZ stockholders’ meeting held in August 2015 failed to reach a consensus. And although now the 52% majority belongs to Poland, there is a nuance. Wise lawyers amended the company Charter providing for such terms that all decisions shall be made unanimously by Gasprom and PGNiG. Therefore we cannot do without a consensus ..During all 20 years Poles and Russians have been friendly while doing our common cause. Even now older members of the company view Russian-Polish friendship with some trepidation. They do not have even a bit of Russofobia. On top the situation is more complicated … Now the priority for Russia is МГП Nord Stream-2 in which neither Poland nor Slovakia take part, which assumes absence of transit payments”.

Тhus the situation for PGNiG, which is already complicated, may become at any moment more and absolutely unpredictably complicated by their own оperator.

Meanwhile the Polish market is being slowly captured by Gasprom subsidiaries, especially by the same Gasprom Germany which owns also 50% of Wingas — by concluding numerous long-term contracts with municipalities of cities providing for supply of liquefied gas for the needs of city transport and municipal economies. Among such cities are Warsaw, Srem and Olshtyn. Probably there are more of those as contracts may be concluded through numerous Cyprus and German enterprises like Cryogas M&T Poland that are related to Gasprom.

Тhus Miller’s statement “During 25 years “Gasprom and BASF/Wintershall have accumulated colossal experience of cooperation in all segments: from добычa extraction and transportation to storing and sale of natural gas. Consistent strengthening of our positions along all the production line is a crucial foundation for our future common victories, the groundwork for reliable gas provision for Europe for decades in advance “, posted on BASF corporate site sounds somewhat ominous both for Poland and Ukraine.

S.Platonov

* іn other words, privileged “decision makers”.

** unfortunatelly, we didn’t have a chance to proove the following statement. «Gazelle, which is a continuation of OPAL, is planned to use for transit to Widehouse. Since 2011 Gazelle is free from the regulation of European Comission and national authority of Chech Republic. The corresponding EC resolution states that Gazelle will not affect the market competition in Chech Republic and Germany»